Fed Chair Warsh, in First Testimony, Vows No Tolerance for Inflation, Defends Independence

Federal Reserve Chair Kevin Warsh, in his first congressional testimony since taking office May 22, delivered a firm commitment to restoring price stability while offering no clear signal on the next direction of interest rates, according to his prepared remarks and exchanges with lawmakers.

“The members of our committee have no tolerance for persistently elevated inflation,” Warsh told the House Financial Services Committee on Tuesday. “We share a resolute commitment to restoring price stability.”

Warsh described the U.S. economy as expanding at a solid pace, with moderate household consumption, steady manufacturing output, and surging business investment driven by artificial intelligence infrastructure. He characterized the rapid pace of AI-related investment as “the most striking feature of the economy right now,” adding that the Fed is monitoring the implications for inflation and the labor market.

The Fed chair also noted that productivity growth has been strong and that the labor market is “broadly stable,” with few layoffs, stable job vacancies, and solid nominal wage growth.

**Inflation Data and ‘Mission Accomplished’**

Warsh’s testimony came hours after the Bureau of Labor Statistics reported that headline consumer prices fell 0.4% in June from May, the first decline in six years, largely reflecting a slump in energy prices. Core inflation, which excludes volatile food and energy components, was flat month over month, and rose 2.6% year over year — a slower pace than expected but still above the Fed’s 2% target.

Asked about the data, Warsh pushed back against any notion the inflation fight is over. “There might be some that look at this morning’s data and say, ‘mission accomplished,’” he said. “That is not my view.”

The cooling inflation figures reduce immediate pressure on the Fed to raise rates, but Warsh and several other officials have warned that renewed conflict in the Middle East has driven oil prices back up, threatening to reverse progress. Brent crude topped $87 a barrel, according to a separate report.

**Divided Committee, No Rate Guidance**

Warsh heads a rate-setting committee that is sharply divided. Minutes of the Federal Open Market Committee’s June meeting showed that nine officials foresaw at least one quarter-point rate hike this year, while another nine expected no move or a cut. Fed Governor Christopher Waller said Monday that another hot inflation report would force the committee to consider raising rates “in the near term,” while New York Fed President John Williams suggested that a steady core inflation pace of 0.2% monthly could allow the Fed to hold rates steady.

Warsh, who has been critical of forward guidance, declined to submit a rate forecast and did not signal any explicit threshold for tightening. “We have the tools to do it,” he said, referring to the Fed’s monetary policy tools. “Over the coming period, I’m going to ask our colleagues to have a good family fight about the extent and timing in which we would need to deploy those.”

Economists said the remarks did not project a near-term rate hike but were the closest Warsh has come to acknowledging the possibility. Goldman Sachs economists described the language as “hints about his view on responding to high inflation caused by supply shocks,” according to a note cited by Bloomberg. However, Harvard economist Jason Furman said he saw no new signal: “Anyone who thinks they might be hearing hints of his future plans is mishearing,” Furman said.

**Defending Central Bank Independence**

Warsh faced repeated questions from Democratic lawmakers about whether he would resist political pressure from President Donald Trump, who publicly criticized his predecessor for not cutting rates quickly enough. “We’re an independent central bank,” Warsh said when Rep. Nydia Velázquez asked whether he worked for the president. “Outside the four walls of the Federal Reserve, there’s no doubt a lot of politics.”

Rep. Gregory Meeks pressed Warsh on how he would respond if Trump demanded lower rates. “My commitment to you is to follow the law and follow the data, follow our very best judgment,” Warsh answered.

Warsh also cited the Supreme Court’s recent decision allowing Fed Governor Lisa Cook to remain on the board, thwarting Trump’s attempt to fire her, as a sign the high court views the Fed as independent. “To the extent there were questions about it, the court has answered those questions,” he said.

**AI and the Fed’s Role**

A heated exchange broke out between Warsh and Rep. Stephen Lynch, who warned the U.S. risks falling behind in the global AI race. Warsh pushed back, arguing it is not the central bank’s job to direct AI investment or industrial policy, stressing the Fed’s mandate is monetary policy and financial stability.

**Forward Guidance and Communication**

Warsh defended his plan to reduce the amount of public signaling about future rate moves. “If we were to share with you our every passing thought, I worry not that there’s anything wrong with us, but we’re human,” he said. He argued that excessive guidance can create outdated expectations and that policymakers should focus on making sound decisions based on incoming data.

Warsh also noted he had appointed five task forces to explore ways to improve the conduct of monetary policy, saying the Fed has “a duty to point the institution forward.”

The testimony represented Warsh’s first major public appearance as Fed chair, setting the tone for a tenure that will navigate sticky inflation, a divided committee, and intense political scrutiny.